wcaseym (51.51)

The shock doctrine

2

... explosive new book exposes the lie that free markets thrive on freedom. [Also provides few solid hints to us investors - those with ready cash, where to invest when the disaster strikes! Neat, eh?]

Chile was the first laboratory for the shock doctrine. This was in the aftermath of the coup that overthrew the elected government of Salvador Allende. The coup took place, interestingly, on September 11, 1973. That was the coup that brought Augusto Pinochet to power. This was a notorious dictatorship - notorious for its brutality - but there was another element to the dictatorship, which was it was a laboratory for the radical brand of capitalism that Milton Friedman and Friedrich Von Haek at the University of Chicago had been theorizing about previously.

The University of Chicago had almost a cult-like atmosphere with the idea that if markets were left completely alone and were allowed to govern every aspect of life, then you would have the freest and most equitable society possible. But up until Chile this was just a theory, this was just mathematical modelling in the basement of the social sciences building at the University of Chicago. It wasn't until Pinochet's coup that graduates of that program were able to practice their ideas in the real world.

That's because the US government had paid for a group of Chilean students to come to the University of Chicago on scholarship - paid for by the taxpayers - to study under Milton Friedman and his colleagues.

They'd really been trained as ideological warriors to take on the left-wing economists that were gaining power in Latin America. These graduates were known as "The Chicago Boys" and after studying this radical brand of consumer economics they returned to their home countries and on the night of the coup this group of Chicago Boys were busily copying a document that was called The Brick. This was the economic program that Pinochet would later enforce; it was everything from privatising social security to charter schools to a flat tax. It was the sort-of wish list that Milton Friedman had indoctrinated them to believe was the best way to organise a society.

In the book I talk about three different forms of shock: the first is the shocked countries of a major disaster; the second is economic shock therapy, which is the rapid-fire economic transformations of a country - a sort of extreme country makeover; and the third happens often when countries resist the economic shock therapy and that's the shock of the torture chamber, the shock of the police baton.

In Chile you had these three forms of shock, you had the shock of the coup to overthrow the Allende government, then you had rapid-fire economic shock therapy, as it was called by the Chicago Boys at the time and Milton Friedman, and then you had this whole system enforced through state terror through Pinochet's torture chambers.